How Waterfall Financing Actually Works (And Why It Lifts Approvals)

# How Waterfall Financing Actually Works If you sell anything over about $500, you have a customer-financing program. The question is whether it's built to capture customers across the credit spectrum, or built to lose the ones who don't qualify for your primary lender. This is what waterfall financing solves. ## The single-lender problem Most merchant financing programs started life as a single-lender deal — Synchrony for furniture, CareCredit for veterinary, GreenSky for home improvement. Those programs work fine for prime-credit customers. The problem is the long tail. A typical single-lender program approves 40–55 percent of applications. The rest walk out — and they're often the customers who actually need financing to close the sale. ## How the waterfall actually runs A waterfall takes one customer application and routes it through a configured sequence of lenders: 1. **Prime tier** — Synchrony, Wells Fargo, Citizens, GreenSky. Sub-10% APRs, longest terms, lowest merchant discount rate. 2. **Near-prime tier** — Genesis, Concora, Credova, Sunbit. Higher APRs, shorter terms, broader approval criteria. 3. **Lease-to-own tier** — Snap Finance, Acima, Progressive Leasing. Non-credit structure, captures the deep-subprime tail. Critically, this happens in a single application — the customer doesn't re-fill anything, and there's only one credit pull at the top of the stack. ## What it does to your numbers Merchants who switch from single-lender to a full waterfall typically see: - Approval rates lift from 45–55% to 75–90% - Average ticket up 10–20%, because customers approved at the bottom of the waterfall buy larger - Sales-to-quote conversion lift, since fewer customers walk The merchant discount rate is higher on lower tiers — typically 5–15% on near-prime, 10–25% on LTO — but the gross-margin math almost always favors the additional revenue.